Global economic outlook and steel demand trends

Eldar Askerov, 23-24 April 2012

1

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3

Contents

Long term steel market trends

Global demand for steel in 1950-2010

Post-crisis steel demand recovery

EU, US

Emerging markets

Conclusions

4

5

Long term steel market trends

6

Steel is a cornerstone

and key driver for the

world’s economy.

7

0

400

800

1200

1600

1950 1960 1970 1980 1990 2000 2010

Global growth in steel production is linked to human

development

Years Mt

1970 595

1975 644

1980 717

1985 719

1990 770

1995 752

2000 849

2005 1,144

2010 1,414

2011 1,527

Source: worldsteel

World crude steel production, 1950-2011

Steel a key driver of the world’s economy

World crude steel production has increased from 851

megatonnes (Mt) in 2001 to 1,527 Mt in 2011. (28.3 Mt in 1900).

The industry directly employs 2 million people worldwide, with a

further 2 million contractors and 4 million in supporting industries.

Considering steel’s position as the key product supplier to

industries such as automotive, construction, transport, power and

machine goods then using a multiplier of 25:1 the steel industry

is at the source of employment for more than 50 million people.

World average steel use per capita has steadily increased from

150 kg in 2001 to 220 kg in 2010.

India, Brazil, Korea and Turkey have all entered the top 10 steel

producers list in the last 40 years.

8

Regional steel demand breakdown in 1950-2010

Regional structure of steel demand has been changing continuously

along with:

Regional economic growth trends

Evolution of global manufacturing base through creation and relocation of industries

Source: worldsteel, SSY

9

Apparent crude steel use in 1950-2010

0

200

400

600

800

1000

1200

1400

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

China

Asia and Oceania excl China

former USSR

North America

EU 15

Africa and Middle East

South America

Other Europe

Mt

10

58.4% 41.6%

28.7%

41.7% 58.3%

71.3%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Developed Economies Emerging & Developing Economies

Regional share in world steel demand

Source: worldsteel, SRO

Share of fixed investments in GDP,%

0

5

10

15

20

25

30

35

40

45

50

Ch

ina

Vie

tna

m

Ind

on

esia

Mo

rocco

Ind

ia

So

uth

Ko

rea

Alg

eria

Sin

ga

po

re

Th

aila

nd

Sp

ain

Ca

na

da

Arg

en

tin

a

Ira

n

Ru

ssia

Sa

ud

i A

rab

ia

Ph

ilip

pin

es

Ma

laysia

Ja

pa

n

Po

lan

d

Ita

ly

So

uth

Afr

ica

Ukra

ine

Eg

yp

t

Tu

rke

y

Bra

zil

EU

15

Ge

rma

ny

Un

ite

d S

tate

s

Un

ite

d K

ing

do

m

2007

2010

%

15

20

25

30

35

40

45

50

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

China

Indonesia

Thailand

India

Vietnam

%

Forecast

11

Investments: steel demand driver in developing world

Source: Global Insight

Urbanisation and

development of

manufacturing base

boost steel demand

Fixed investments,

% to GDP

Fixed investments in 1980-2015,

% to GDP

Developing world: strong fundamentals for growth

Strong upward population trend with high share of working age population

Strong needs for infrastructure and industries development

12

Source: Global Insight, worldsteel

*real 2005 PPP$

Population,

million Urbanisation, %

GDP per

capita, PPP$*

Steel use

per

capita, kg

2011 2020 2011 2020 2011 2020 2010

Brazil 197 210 9,961 14,015 133

Mexico 115 126 76 77 13,224 16,911 140

Turkey 74 81 12,390 16,675 320

Indonesia 242 263 53 61 4,094 6,106 37

Thailand 70 72 34 39 7,648 10,884 202

Vietnam 89 96 30 35 2,981 4,803 141

India 1,241 1,387 30 34 3,195 5,895 52

China 1,347 1,388 51 61 7,503 14,306 427

13

Post-crisis steel demand recovery

14

Global steel demand growth in 2001-2011

Source: worldsteel

Steel demand landscape has been changed by global economic crisis

Two-speed world: emerging & developing economies vs developed

Global steel demand, ASU finished steel

5.5

0.18.9

-5.0

8.9-0.61.8

-6.1 -5.7

-32.9

24.4

3.7 10.45.6

12.09.3

14.612.512.9

8.9

12.6

17.8

-40

-30

-20

-10

0

10

20

30

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

%

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

MtWorld, mmt

Developed Economies, y-o-y % growth

Emerging&Developing Economies, y-o-y % growth

Regional summary at a glance

Source: worldsteel, SRO

15

Apparent steel use finished steel, Index (2007=100)

40

50

60

70

80

90

100

110

120

130

140

2007 2008 2009 2010 2011

World

CIS

Africa

EU-27

NAFTA

Middle East

Other Europe

Central&South America

Asia&Oceania

16

IMF GDP Forecast Revisions

for Advanced Economies

2.62.5

1.4

1.2

1.9

2.62.6

2.0

1.9

2.4

2.52.5

Oct-10 Jan-11 Apr-11 Jun-11 Sep-11 Jan-12 Apr-12

2012 2013

Global economic outlook

6.0

6.56.4

5.7

5.4

6.1

6.66.5

6.5

5.9

Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

2012 2013

IMF GDP Forecast Revisions for

Emerging and Developing Economies

Source: IMF

In 2012 the world economy is projected to expand by

3.5% (IMF)

Downside risks for the forecast:

Sovereign debt crisis in euro zone

Subdued growth as a result of austerity measures

Significant slowdown in growth in emerging economies

China’s hard landing

World GDP, y-o-y, % Industrial production, y-o-y, %

Source: Global Insight

17

-20

-15

-10

-5

0

5

10

15

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

World

Advanced Economies

Emerging Markets

%

Forecast

-8

-6

-4

-2

0

2

4

6

8

10

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

World

Advanced Economies

Emerging Markets

%

Forecast

EU steel market: thorny way to recovery

Two-speed euro zone: North and South Europe

Germany: positive economic outlook, strong growth in construction,

automotive

Spain, Italy: the second wave of crisis

EU: Strong rebound in automotive sector

EU 15: steel using sectors growth, %

Source: worldsteel, Oxford Economics

EU countries: steel demand, Mt

18

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Automotive

Metal Goods

Electrical engineering

Mechanical engineering

Transportation (less automotive)0

5

10

15

20

25

30

35

40

45

50

2003 2004 2005 2006 2007 2008 2009 2010

Germany

Italy

France

Spain

UK

mmt

Is the US economy coming back on growth path?

US: steel using sectors growth, %

Latest data gives some hope that the US is recovering steadily

US construction: housing starts seems to rise but still has a long

way to go

Strong rebound in automotive industry

0

200

400

600

800

1000

1200

1400

1600

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

0

0.5

1

1.5

2

2.5

New 1 Family Houses Sold: sa: Annual Rate Private Housing Units Started: saar: Total

% %

US: Housing units started and

houses sold, %

Source: CEIC, Oxford economics

19

-30

-20

-10

0

10

20

30

40

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Fabricated metal products

Mechanical machinery

Electrical and optical equipment

Motor vehicles

-10

-5

0

5

10

15

20

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Indonesia Thailand Vietnam Malaisia ASEAN

%

ASEAN: positive perspectives for steel demand

ASEAN: Industrial production

growth, %

Indonesia: steel using sectors

growth, %

Thailand: steel using sectors 2005=100

Source: Global Insight, Oxford Economics

Indonesia: slight slowdown in

2012 after impressive growth in

2011

Thailand: after floods recovery

Region has strong fundamentals

for steel demand growth

Infrastructure improvement

20

0

20

40

60

80

100

120

140

160

180

1Q20

06

3Q20

06

1Q20

07

3Q20

07

1Q20

08

3Q20

08

1Q20

09

3Q20

09

1Q20

10

3Q20

10

1Q20

11

3Q20

11

1Q20

12

3Q20

12

Industrial production Manufacturing Motor vehicles

-30

-20

-10

0

10

20

30

40

1Q2008 3Q2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011 3Q2011 1Q2012 3Q2012

Manufacturing Mechanical machinery Fabricated Metal Goods Motor vehicles

%

21

India

Source: CEIC, Global Insight

0

50

100

150

200

250

300

350

400

450

Apr

-05

Aug

-05

Dec

-05

Apr

-06

Aug

-06

Dec

-06

Apr

-07

Aug

-07

Dec

-07

Apr

-08

Aug

-08

Dec

-08

Apr

-09

Aug

-09

Dec

-09

Apr

-10

Aug

-10

Dec

-10

Apr

-11

Aug

-11

Dec

-11

IP: Manufacturing

IP: Capital Goods

IP: Consumer Goods: Durables

India and China: Industrial

production growth, %

India: Steel using sectors 2004-05=100

Current deceleration due to

anti inflationary policy

weak external demand

Long term: economy needs modern infrastructure

0

2

4

6

8

10

12

14

16

18

20

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

China

India

%

China: deceleration of growth in 2012

Gradual slowdown because of anti inflationary policy and weaker

external demand

Cooling real estate sector

Source: worldsteel

22

YTD Growth Of Auto & Machinery Sectors

Production

-1.8%

47.7%

9.8%

47.5%

-5.7%

-40%

-20%

0%

20%

40%

60%

80%

100%

Ja

n-0

8

Ap

r

Ju

l

Oct

Ja

n-0

9

Ap

r

Ju

l

Oct

Ja

n-1

0

Ap

r

Ju

l

Oct

Ja

n-1

1

Ap

r

Ju

l

Oct

Ja

n-1

2

Automobile Civil metal vessels AC electromotor

Household refrigerator Room air condioner Household washing machine

YTD Growth Of Construction Industry

33.5%

38.2%

27.8%

14.2%

26.6%

35.5%

-10%

0%

10%

20%

30%

40%

50%

Ja

n-0

8

Ma

r

Ma

y

Ju

l

Se

pt

No

v

Ja

n-0

9M

ar

Ma

y

Ju

l

Se

pt

No

v

Ja

n-1

0

Ma

r

Ma

y

Ju

l

Se

pt

No

v

Ja

n-1

1

Ma

r

Ma

y

Ju

l

Se

pt

No

v

Ja

n-1

2

FAI in real estate Floor space under construct ion Cement output

0

5000

10000

15000

20000

25000

Shanghai

Tia

njin

Beiji

ng

Jia

ngsu

Zhejia

ng

Guangdong

Shandong

Inner

Mongolia

Lia

onin

g

Fujia

n

Jili

n

Heilo

ngjia

ng

Hebei

National T

ota

l

Hubei

Chongqin

g

Henan

Xin

jiang

Shaanxi

Shanxi

Hain

an

Hunan

Qin

ghai

Nin

gxia

Sic

huan

Guangxi

Anhui

Jia

ngxi

Tib

et

Yunnan

Gansu

Guiz

hou

PPP$

Shanghai

Tianjin Beijing Xinjiang

Gansu

Xizang

Qinghai

Sichuan

Nei Mongol

Yunnan

Heilongjiang

Jilin

Liaoning

Ningxia

Shaanxi

Shanxi Hebei

Shandong

Henan

Hubei

Guizhou Hunan

Fujian

Taiwan Guangdong Guangxi

Hainan

Jiangsu

Zhejiang

Jiangxi

Anhui

China: multi-speed growth in provinces

Less

developed

Level of

development

according to

GDP per capita

Developed

Source: Global Insight

China: provincial

GDP per capita

23

Conclusions

Regional structure of global steel demand has been changing over time

due to many different factors including competitiveness of the local

manufacturing, construction activity, population trends.

Despite the deceleration of growth in the post crisis period developing

economies have strong fundamentals for steel demand growth.

Global steel demand has maintained relatively stable recovery

momentum so far despite uncertainties and volatilities in the global

economy.

Evolution of the euro zone crisis and healthy growth of the emerging

economies, especially of China, are critical to current trends.

24

25

Steel touches every

aspect of our lives.

No other material has

the same unique

combination of

strength, formability

and versatility.

26 July 24, 2012 26

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